All right, we'll go ahead and get started. I'm Blayne Curtis, one of the semi analysts here at Barclays. Very happy to have LSI with us. We're going to do a more informal fireside. From the company, we have Jeff Richardson, the Chief Operating Officer; also, mosino [ph] Sujal Shah from Investor Relations.

And maybe let's talk about -- but maybe just start off with just a brief overview and kind of -- some people who may have -- haven't heard your story in a bit, Jeff and then we'll dive into the questions.

D. Jeffrey Richardson

Okay. Great. Thanks, Blayne, there. So obviously, many of you follow LSI but maybe many of you are new. We've really undergone quite a transformation at the company over the last 5 years. And really, really refocused the company in a couple of key areas. Certainly, storage and networking technologies is really where we're focusing and, essentially, a strategy for the company has been focusing on what we call the data deluge gap, right? And if you think about all of the information that we as consumers or corporations are creating every day and the demand that's putting on infrastructure, there's a pretty significant gap in terms of the 30% to 50% CAGR of network traffic that's certainly increasing every year, the amount of storage capacity that's being used every year. A gap between that and the actual underlying infrastructure, to build the infrastructure to keep up with that.

So LSI, quite simply, is focusing on helping close that gap and we are a company that develops numerous processing capabilities that are very much focused on unique aspects of the storage and networking industries. So we feel very good about the market trends and the market drivers associated with our business.

We've been in a big investment cycle in the last 3 to 4 years and really have just started coming out of that investment cycle over the last 12 months or so. And I think the neat thing about it is we're actually starting to see the results of those investments show up in our numbers, right? In Q1, we grew 19% sequentially, 30% year-over-year from a revenue perspective and that's coming off of a 9% growth in 2011 and, actually, 16% growth in the second half of 2011. So there's some momentum that certainly is being built underneath the business. And I'll just point out, not all of that is driven by sort of HDD snapback. There's really a momentum being built in all aspects of our business in terms of the products and share gains.

So the results really haven't, I'd say -- well, actually one more thing I'd like to say is we've obviously been focusing on operating margin expansion as well, too. So we really grew our operating margin to 16.4% of revenue in Q1. If you look at our outlook for Q2 and just look at the midpoint that has us – it's around 17.5% operating income. And at our Analyst Day, we basically recommitted a new target for the company with 20% to 22% operating margin range for the company. So a big focus for the management team and, certainly, our path to achieve that is really revenue growth and driving higher mix to higher ASP products along the way as well.

If you look at the product line, they'd say, boy, it's exciting, I have 4 or 5 product lines. We haven't been in a position we've been in ever as a company in terms of leadership of product lines. And so on the HDD side, we've got preamps and SoCs. In general, we feel very good about the competitiveness of those products and that competitiveness along with the desire of each of the HDD vendors to have multiple source of technology has really led us to create some momentum in that business and we grew share from the low 20s a year or so ago to the 30-plus percent range. And we expect to continue to grow share as we ramp new products and add some new customers later this year.

On the flash side, very exciting business for us. We acquired SandForce in January. So if you take SandForce's business and flash storage processors, combine it with the efforts that we have at LSI from a custom flash storage processors as well as our PCIe flash efforts, that aggregate business will grow 100%, 150% this year off a base of roughly $70 million, $70-plus million dollars the last year. So a lot of momentum in those businesses and, really, the combination of all those things has really catapulted us into a leadership position in this pretty exciting flash market. And I'm sure there will be some questions on that here in a second.

On our Server business, doing a great job in terms of maintaining our share but adding share on the Romley transition from an Intel perspective. We've -- adding more software values so there's ASP uplift as well as, we've got actually new products, right? Whether it's our PCIe flash products getting validated along with the Romley transition, we're adding a product, a custom Gigabit Ethernet Mac/PHY combination that is part of the Intel platform as well. So our content in the Romley platform is actually going up from a previous generation.

And then finally, networking, we talked about our Axxia product line. It's essentially a communication processor focused primarily on wireless infrastructure and we've had amazing amount of success in the industry, accumulating design wins for those products and we're in a position where we believe the combined control data plane, we'll roughly 50% of the market in those devices in base stations as we ramp those products and some of those products will actually start ramping later this year.

So I feel very good about the product line in terms of our leadership and ability to gain share and grow it healthy double-digit rates for the foreseeable future.

So I think in summary, right, financially doing great, product lines are actually very competitive. Clearly, we feel, especially today, the stock is -- and the company is significantly undervalued and represents a pretty good opportunity for investors at this point in time.

Question-and-Answer Session

Blayne Curtis - Barclays Capital, Research Division

Thanks. I didn't want to start off with hard drives because I do want to focus on the areas that I think are interesting and maybe new for some people. Obviously, today, there seems to be some renewed concern about some inventory in the channel. But so, maybe we will start with hard drives and if you can just talk about the supply demand dynamics you're seeing, When do you think this market will catch up, whether do you think there's any sort of inventory in the channel. I know it's hard to tell but your thoughts would be helpful.

D. Jeffrey Richardson

Yes. I think we're starting to process some of the reports that probably many of you are looking at today and, certainly, over the last few days. I think there's maybe a couple of dynamics that may play out and I think we're assessing this really simultaneously with many of you. I mean, I guess you just start with what we know. We certainly -- the TAM in Q1 was on the order of 140 million units within the hard disk drives space, which is very clearly below pre-flood levels. And so I think, relative to hard disk drive companies overshipping at that level, I find it very hard to believe that with Q1 at that level and Q2 projections in the 160 million unit range, which is still slightly below pre-flood levels, that we would have a huge unit inventory situation in the channel. Having said that, we need to go understand that I think, certainly, there could be another dynamic playing out in terms of pricing and ASP pressure on hard disk drive vendors in the channel, certainly as everybody comes back online and they look to maintain or extend their share. I think from an LSI perspective, we certainly track units not a hard disk drive ASPs and obviously is something that we'll need to continue to keep an eye on as we go forward.

Blayne Curtis - Barclays Capital, Research Division

Then maybe just following up on hard drives since we're there already. On the technology front from SoC perspective, can you just talk about -- I know there's a lot of back and forth here and I don't want to dive too much into that. But can you just talk about how you feel about your leadership in SoCs and kind of how that will translate into any share gain.

D. Jeffrey Richardson

Yes. I mean, I think the environment for a company like LSI and certainly, the SoC industry and hard disk drive space is very different today than what it has been historically. I mean historically, there's been 1 very dominant player and a number of smaller, somewhat weaker players. I think what we've been focused on over the last couple of years is really driving aggressive investments in technology leaderships, specifically in the read channel capability as well as preamps and basically, have been very successful at taking advantage of that lead and the desire for many hard disk drive vendors to have multiple sources to go accumulate shares. So you're now are in a very difficult situation with the industry where it's no longer 1 dominant player and a bunch of small players, it's really now 2 very capable players. And so I think we feel very good about our position right now. There's a lot of execution that we need to go drive and we certainly take competition very seriously. But I think the track record that we demonstrated now over the last 12 to 18 months in terms of executing on our commitments to customers as well as showing the results in terms of share gains sort of speak for themselves. And our plan is to continue that progress as we certainly go through time here.

Blayne Curtis - Barclays Capital, Research Division

Then maybe moving to SSDs. Obviously, some explosive growth the last 2 quarters in this market. Could you just talk about the opportunity in SSDs as far as the market size, as well as maybe address some of the competitive landscape and then longer term here, is this a market that you continue to extract value or is this going to be a commoditized market as it hits volume?

D. Jeffrey Richardson

A lot of questions there. So let me start with the overall market. I mean, if you look at various predictions, there will be roughly 35 million units of SSDs that'll ship in 2012 and projections of that growing to 100 million units by 2015. Majority of that being client based but certainly a good portion of enterprise in there as well. In fact, this year it's probably 34 million client, 1 million enterprise. So it's a very relevant market in terms of size and certainly high-growth rate and we're excited. I mean, we acquired SandForce for a reason. We studied this market very carefully. We're very excited with what we've got and it's exceeding expectations across the board. As I mentioned, our aggregate flash revenue will grow on the order of 100%, 150% this year, so we do believe we'll grow fast in the market. And our expectations is we're a leader in this market by the end of this year. The technology itself in terms of the industry structure, one aspect of flash storage processing is very key. It's going to get even harder for SSDs to be built out of each subsequent generation of flash. Many of you know that flash pricing continues to go down with each generation, that's good. There's more capacity in terms of each flash device that's basically brought to market in each generation. That is good. But the challenges of dealing with, inherently, a very unreliable technology actually get greater with each subsequent flash generation. So you've got technology that, historically, from a program-erase cycle perspective, it's been on the order of 100,000 program-erase cycles, going down to 10,000, now getting down to 1,000 program-erase cycles. So there's a lot of work that has to go into managing that inherent -- that problem in flash and the flash storage processor is really at the center of that. So we believe we have some very unique technologies to go do that. We actually invest in the 4 software stack that goes with that gives vendors a lot of flexibility in optimizing our solution for their particular flash. And we believe we're pretty uniquely positioned to go and carry that forward.

Blayne Curtis - Barclays Capital, Research Division

Excellent and maybe just diving -- drilling down to the enterprise side a bit more with your PCIe flash products but it also seems a bit broader. Kind of what does LSI bring to the enterprise market with your existing strength and kind of how does that translate into revenues this year?

D. Jeffrey Richardson

Yes, so we had a very significant launch of our PCIe flash product line back in April and we're now calling that product line the Nytro product line and it isn't a single product. So if you look at sort of the needs by enterprise server, vendors or end users whether that be a financial service company, Facebook, web 2.0 type company, there's varying needs of flash within their data center infrastructures. I'd say at the top end of the pyramid where most of these PCIe flash devices are being sold today, you are finding that companies will basically take a flash PCIe card with a significant amount of flash on it and essentially install that into their server and have it completely replace hard disk drives in that particular application. The challenge is that the end user has to actually change the application to recognize that your tier of flash or storage is in that hierarchy and so there's a significant amount of work that has to go in to do that but the benefits are huge. You're talking about multiple times improvement in performance. And so if you look at where a lot of the deployments of PCIe flash have been over the last 12 to 18 months, it's really been in this area. It's companies like Facebook. It's these big data centers who can control their own applications and go optimize for that. But we think there's more interesting segments beyond that, that we think we could be, I'd say have a higher attach rate to storage or servers from a flash perspective. The first sort of layer is just providing intelligent software that basically prevents the need of anybody having to make any application changes. So you put a flash card in, you load up a driver that's got a lot of intelligence in terms of how the data is being used in any of the applications and can intelligently cache the data as it's sort of being read and written into the server, into the actual PCIe flash drive itself. And so that there's a number of companies working on that. LSI, we've announced a product line in that category. I think you can view that as sort of used in conjunction with our PCIe flash parts. Another application of flash, actually, if you just start with how servers are deployed today, if you look a server today that's just all hard disk drives, there typically is a RAID card that's doing all of the data protection and data management sort of between the server and the bank of hard disk drives. LSI today has a very strong position in that market. We have probably 65% share of RAID cards devoid [ph] today in the industry. So if you can imagine that RAID card that now has embedded flash on that card and then take that cache and software and actually embed it right on the RAID card, you essentially have a RAID card that is really on steroids. It can provide 1 to 2 or 2x-plus performance increases by taking advantage of that flash and the caching capability of that flash, albeit maybe not as much performance as something that's been optimized at the application level. But 70% of the benefit but significantly faster than the typical hard disk drive application.

So we believe that's an exciting product category as well and something that also is uniquely positioned to grow into given the presence we have in the host base RAID side of our business.

Blayne Curtis - Barclays Capital, Research Division

And then maybe turning the focus to your networking business. I would say this is probably the most underappreciated piece to your business and then when you -- we start talking about multi-core, I think everybody is familiar with Cavium, or NetLogic or Freescale. Now, there's LSI in the mix. I mean, can you talk about kind of where you just see it in the market today and then kind of what's the roadmap to kind of the game concept?

D. Jeffrey Richardson

So we've -- LSI has actually have a long history. Today, probably 90% to 95% of base stations -- wireless base stations have some form of LSI content on it today. And I'd say that probably the predominant content that's shipping today is what we call data plane processing, right? And that's really the processor that's doing all of the work to go manage data on and off the base station, maintain a level of service, maintain quality of service to the caller, to the user of that service, if you will, from a handset or a cell phone perspective. I think if you look at that, that's one key capability. But if you look at a base station today, there's control plane processing, there's baseband processing, there's a number of capabilities. So what's happening within the base station is that companies want to see a lot of this integrated into single devices so that they can get higher performance, lower power, lower cost and have more flexibility in terms of deploying multiple standards, multiple radio standards as well. And so Freescale, Cavium -- there's a lot of companies that are participating in different forms in the base stations. Many of them are actually in this control plane processing. So when you go to combine and drive in integration of control plane processing and data plane processing, it is essentially a multi-core processor but it has to provide that determinism and quality of service that all these customers and service providers and us, as users, would expect for the services that are actually deployed on that base station. And actually where there is an advantage at LSI. We actually understand these things, we have a footprint today in terms of servicing this market. And it's a lot harder to actually develop products are in the data plane space versus the control plane space. So we're driving a product, our Axxia product line is a standard product. We've announced and launched that thing 18 months ago. We're actually starting to ship volume this year and we'll see that ramp happen in the second half of this year. And essentially, that's a integration of control and data plane capabilities but taking a very different approach than a lot of other customers. A lot of other companies talk about multi-core as their approach to doing things. We have a multi-core solution, but we have a lot of acceleration technology that sit off on the side of that multi-core complex that when combined sort of give you the best of both worlds and you get very high performance, very deterministic performance because of acceleration blocks but you get the benefit of scale from a multi-core solution as well, too. So very different approach that's getting a lot of momentum now with customers in terms of their next generation deployment to base stations.

Blayne Curtis - Barclays Capital, Research Division

You obviously have announced a couple of customers, Ericsson, NSN. How does this translate if you can maybe talk about, is this integration 5 years down the road or are we going to see this integration actually create wins which will generate revenue in the foreseeable future?

D. Jeffrey Richardson

This integration is starting to happen this year. And so we have wins in base stations that will start ramping at the latter part of this year but the portfolio and the design wins have been built out on top of that and you'll see sort of accumulated business happening over the next 2 to 3 years. And I think what's the really neat is that there's a lot of momentum getting built. There is a lot of software that gets put into making this thing happen. Add a customer and as soon as that's done once, that actually is helping the design wins sort of multiply within those particular customers. The other thing that's happening here is actually there is a movement from PowerPC to ARM in many cases, with these customers and we've announced some pretty big collaborations with ARM around this space that we're pretty excited about. Actually, ARM is as well in terms with some work that we're doing to go accelerate the transition to ARM in this space. So we're bringing a number of unique value points into the equation here that will be a sort of very high-growth franchise for the company here not just for the next year but really for the next 5, 6 years

Blayne Curtis - Barclays Capital, Research Division

And the Axxia products that you are starting to ramp is a 4-core PowerPC. I get this a lot where people say, well, feeding solutions are 16, 32. You can go to a 64 core, higher clock counts. I mean, how do you win in that environment?

D. Jeffrey Richardson

We win by application performance and I'd say our products are sized appropriately for the applications. I think one of the unique capabilities of LSI is we have a lot of expertise. We're not a processor -- generic processor company. We're a networking company, we're a storage company. So we have a lot of system-level expertise in each of these whether it's a base station or a server or whatever and we basically have crafted products that are very targeted at those applications. So the difference between our solutions versus a 16- or 32-core solution is that it's really in all those acceleration blocks that we have sitting off on the side, a combination of packet processing, classification, security blocks. These are things that are basically offloading the multi-core processing solutions in a much more efficient manner. So what you do is you -- it results in a product that actually has much lower power because I'm not burning inefficient cores to go do these workloads. I'm actually doing them actually in specialized hardware. And it allows us to basically provide determinism because you know exactly what the performance of that block is going to be because we've designed it to be very deterministic upfront. That's really the differentiation between us and the other companies that you mentioned and I think you can't base it on how many cores you have. You have to actually use it in the application and I'd say that's been the difference for us. We've been sampling real products now for the last 12 months and a lot of the momentum has been created by customers actually using the product, writing software, importing some of their software on top of our product and actually seeing the benefits. There's cases where customers who have literally seen 2x the performance of what they're actually using today by using an Axxia product and actually, it's fewer cores [ph] on the Axxia product to go get that. That says we're doing something pretty unique on top of multi-core to go make that happen.

Blayne Curtis - Barclays Capital, Research Division

And then maybe one final question in networking. The Ericsson win is a macro base station or that what I believe, I don't know if you actually said it but can you talk about your progress moving into the enterprise? I think you have announced at least 1 win that you haven't qualified. And then as micro architectures kind of move into the fold in the next couple of years, how you will address those as well?

D. Jeffrey Richardson

Yes, so I'll take the last one first. So the current -- certainly the current focus and where we've got the majority of our business today in terms of wins is absolutely in the macro space. That is certainly the sweet spot, but what's happening in the industry is, as LTE gets deployed in some of these next-generation wireless standards and you see more micro-based stations get deployed, they need to have software compatibility between all of the different base stations. So it's actually an advantage. So a lot of our technology is now being adapted into the micro base stations as well and the reason why is because they can keep essentially the same software capabilities that they've already developed on the macro side and provide that sort of end-to-end solution to a service provider or carrier. So we absolutely are going to be participating in that market through existing or derivative products of the same Axxia architecture that we have today. And then as you pointed out, we're actually now taking that same architectural approach in Axxia in migrating that to enterprise. And I think the problem we're trying to solve in enterprise is actually a pretty interesting one. I think many of you certainly know there's been a huge trend in the, I'll call the data center part of the industry, where more and more virtualized servers are getting deployed. And so instead of having 8, 10 servers in a rack, you may have 8 to 10 servers in a rack but each ones are really 30, 40 virtual machines. So you have the equivalent of having almost 1,000 different servers in that particular rack. Each one of those virtual machines is creating traffic into the actual networking switch and with all the virtualization, the switches are getting swamped with too much traffic. It turns out the Axxia communication processor is a perfect solution for managing all that control point traffic in the switch. It does so very efficiently once again because of all the offload engines and acceleration that we have in the product. So we're seeing significant interest and we've announced 1 win and we're seeing a lot more on the way in the enterprise to go make that happen.

Blayne Curtis - Barclays Capital, Research Division

I guess we're out of time. So thanks, Jeff. Breakouts upstairs.

D. Jeffrey Richardson

Okay. Thanks, Blayne.

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